The extends: resource is used to define child/parent relationships for template inheritance from the PHP script. For details see section of Template Interitance.

As of Smarty 3.1 the extends: resource may use any available template resource, including string: and eval:. When templates from strings are used, make sure they are properly (url or base64) encoded. Is an eval: resource found within an inheritance chain, its "don't save a compile file" property is superseeded by the extends: resource. The templates within an inheritance chain are not compiled separately, though. Only a single compiled template will be generated.

<?php
$smarty->display('extends:parent.tpl|child.tpl|grandchild.tpl'); 

// inheritance from multiple template sources
$smarty->display('extends:db:parent.tpl|file:child.tpl|grandchild.tpl|eval:{block name="fooBazVar_"}hello world{/block}'); 
?>

  

See also Template Inheritance {block} and {extends}.